Quiz #694

• 1. Over the last several decades, central banks and treasuries have used the concept of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) to define full employment and calibrate their estimates of the state of the economic cycle. Accordingly, these estimates will typically be:
• biased downwards indicating they think the economy is further away from full employment than it actually is.
• biased upwards indicating they think that the economy is closer to full employment than it actually is.
• difficult to assess because their forecasts are subject to forecasting inaccuracy.
• 2. When a sovereign government issues debt it logically:
• increases the financial assets that are held by the non-government sector $-for-$.
• has no impact on the overall holdings of financial assets held by the non-government sector $-for-$.
• reduces the capacity of the private sector to borrow from banks because they use their deposits to buy the bonds.
• 3. Only one of the following statements can be true when you observe rising government bond yields for new issues:
• Government spending is becoming more expensive.
• Bond prices are falling in response to demand.
• Government spending is increasing the cost of borrowing for private investors.

Quiz #694 answers

• 1. Over the last several decades, central banks and treasuries have used the concept of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) to define full employment and calibrate their estimates of the state of the economic cycle. Accordingly, these estimates will typically be:

Answer: biased upwards indicating they think that the economy is closer to full employment than it actually is.

• 2. When a sovereign government issues debt it logically:

Answer: has no impact on the overall holdings of financial assets held by the non-government sector $-for-$.

• 3. Only one of the following statements can be true when you observe rising government bond yields for new issues:

Answer: Bond prices are falling in response to demand.